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Employee Benefits

Notes to Consolidated Financial Statements Yellow Corporation and Subsidiaries Employee Benefits Retirement Plans Yellow Corporation and Yellow Transportation provide defined benefit pension plans for employees not covered by collective bargaining agreements (approximately 4,000 employees). Meridian IQ does not offer a defined benefit pension plan and instead offers retirement benefits through a contributory 401(k) savings plan, as discussed later in this section. Pension plan benefits are based on years of service and the employees' final average earnings. The company's funding policy is to contribute the minimum required tax-deductible contribution for the year while taking into consideration any variable Pension Benefit Guarantee Corporation premium. In 2000, the pension plan was amended to provide for the payment of unreduced benefits, at early retirement, for a participant whose combination of age and vested service equals 85 years or greater. Approximately 35 percent of the plans' assets are invested in fixed income securities, 50 percent in U.S. equities, and 15 percent in international equities. Neither the company nor its subsidiaries sponsor a postretirement health care benefit plan. The following table sets forth the plans' funded status: (in thousands)   2002     2001   Change in benefit obligation: Benefit obligation at beginning of year $ 356,035   $ 309,029   Service cost   15,772     14,496   Interest cost   25,595     23,427   Plan amendment   907     1,660   Actuarial loss   30,906     19,167   Benefits paid   (11,512 )   (11,744 ) Benefit obligation at end of year $ 417,703   $ 356,035   Change in plan assets: Fair value of plan assets at beginning of year $ 274,602   $ 269,765   Actual return on plan assets   (26,381 )   (12,864 ) Employer contributions   12,012     29,445   Benefits paid   (11,512 )   (11,744 ) Fair value of plan assets at end of year $ 248,721   $ 274,602   Funded status $ (168,982 ) $ (81,433 ) Unrecognized transition asset   (1,344 )   (2,235 ) Unrecognized prior service cost   13,579     13,985   Unrecognized net actuarial loss   121,850     38,444   Accrued benefit cost     $ (34,897 )       $ (31,239 )   Amounts recognized in the Consolidated Balance Sheets at December 31 are as follows: (in thousands)   2002     2001   Accrued pension liability, net $ (34,897 ) $ (31,239 ) Minimum pension liability   (61,629 )   -   Intangible asset   13,579     -   Accumulated other comprehensive loss (pretax)   48,050     -   Accrued benefit cost     $ (34,897 )       $ (31,239 )   The following table provides the components of net pension cost: (in thousands)   2002     2001     2000   Net pension cost: Service cost     $ 15,772       $ 14,496       $ 11,326   Interest cost   25,595     23,427     21,733   Expected return on plan assets   (25,139 )   (21,010 )   (20,742 ) Amortization of unrecognized net transition assets   (2,380 )   (2,384 )   (2,388 ) Amortization of prior service costs   1,438     1,304     1,113   Net pension cost $ 15,286   $ 15,833   $ 11,042   Weighted average assumptions at December 31: Discount rate   6.75 %   7.25 %   7.50 % Rate of increase in compensation levels   4.50 %   4.50 %   4.50 % Expected rate of return on assets   9.00 %     9.00 %     9.00 %   Increases in the company's pension benefit obligations combined with market losses in 2002 and 2001 have negatively impacted the funded status of the pension plans, resulting in additional funding and expense over the next several years. Due to these same factors, the company recorded an adjustment in 2002 to shareholders' equity of $30.8 million, net of tax of $17.2 million, to reflect the minimum liability associated with the plans. Multi-Employer Plans Yellow Transportation contributes to multi-employer health, welfare and pension plans for employees covered by collective bargaining agreements (approximately 80 percent of total employees). The amounts of these contributions are determined by contract and established in the agreements. The health and welfare plans provide health care and disability benefits to active employees and retirees. The pension plans provide defined benefits to retired participants. The company contributed and charged to expense the following amounts to these plans: (in thousands)   2002     2001     2000   Health and welfare $ 156,081   $ 150,012   $ 154,730   Pension   159,018     157,148     167,772   Total     $  315,099         $  307,160         $  322,502     Under current legislation regarding multi-employer pension plans, a termination, withdrawal or partial withdrawal from any multi-employer plan that is in an under-funded status would render the company liable for a proportionate share of such multi-employer plans' unfunded vested liabilities. This potential unfunded pension liability also applies to the company's unionized competitors who contribute to multi-employer plans. Based on the limited information available from plan administrators, which the company cannot independently validate, the company believes that its portion of the contingent liability in the case of a full withdrawal or termination would be material to its financial position and results of operations. Yellow Transportation has no current intention of taking any action that would subject the company to obligations under the legislation. Yellow Transportation has collective bargaining agreements with its unions that stipulate the amount of contributions Yellow Transportation makes to multi-employer pension plans. The Internal Revenue Code and Internal Revenue Service regulations also establish minimum funding requirements for multi-employer pension plans and a process to address the plans' funding if it fails to meet those requirements. 401(k) Savings Plans The company and its operating subsidiaries each sponsor defined contribution plans, primarily for employees not covered by collective bargaining agreements. The plans principally consist of contributory 401(k) savings plans and noncontributory profit sharing plans. Plans provided by Yellow Corporation and Yellow Transportation consist of both a fixed matching percentage and a discretionary amount. The nondiscretionary company match for these plans equals 25 percent of the first six percent of an eligible employee's contributions. Discretionary contributions for both the 401(k) savings plan and profit sharing plans are determined annually by the Board of Directors. The 401(k) savings plan offered by Meridian IQ provides a fixed matching percentage of 75 percent of the first six percent of an eligible employee's contributions with no option for discretionary contributions. Contributions for each of the three years in the period ended December 31, 2002, were not material to the operations of the company. The company's employees covered under collective bargaining agreements can also participate in a contributory 401(k) plan. There are no employer contributions to the plan. Performance Incentive Awards The company and its operating subsidiaries each provide annual performance incentive awards to nonunion employees, which are based primarily on actual operating results achieved compared to targeted operating results. Income from continuing operations in 2002, 2001, and 2000 includes performance incentive expense for nonunion employees of $15.6 million, $2.9 million, and $38.7 million, respectively. Yellow pays performance incentive awards for a year primarily in the first quarter of the following year. Executive Performance Plan The company implemented a long-term incentive plan in 2002. This plan replaced the use of stock options as the exclusive vehicle for delivering long-term incentive compensation potential to the company's executive officers. Awards under the plan can be made in cash and performance share units at the discretion of the Board of Directors and are expected to vest over three years from the date of grant. The plan utilizes a phased implementation schedule that allows for one-third of the typical award in the first year of implementation, two-thirds in the second year, and the full award in the third year. In 2002, award amounts were based primarily on the company's return on committed capital compared to the Standard and Poor's Small Cap 600. Income from continuing operations in 2002 includes performance incentive accruals for executives of $2.0 million.

Employee Benefits